Aer Lingus CEO Dermot Mannion’s abrupt departure from the Irish airline on Monday morning has left many bewildered.
So far, all we have by way of explantion is this tidbit from the official statement:
Mr Mannion commented, “It has been a privilege to serve as Aer Lingus CEO for the past four years and to have led the company through period of profound change. I would like to thank the Board, management and all employees for their commitment during my time with the Group. My decision to step down will allow a new CEO to bring fresh thinking and new ideas to the business.”Indeed. Under Mannion, who joined from Emirates in 2005, the carrier has been pursuing a rather fuzzy strategy, positioning itself somewhere between a full-service national flag carrier and a discount airline. Since floating the company on the Irish stock exchange in late 2006, the shares have, accordingly, experienced a rather underwhelming performance.
Mannion’s compensation was also under scrutiny earlier this year, after it emerged that former Aer Lingus chairman John Sharman had agreed to change the CEO’s employment contract.The change would have netted Mannion a €2.8m payout in the event of his departure following a successful bid for the airline.
Meanwhile we hear, Aer Lingus chairman Colm Barrington had become increasingly frustrated with his CEO. No wonder then that Barrington hosted a series of meetings with investors in late March — right after Mannion and CFO Sean Coyle had finished a roadshow to pump up interest in the carrier.
From the Irish Independent:
Against this backdrop, management are understood to have come under fire from a number of investors, prompting Mr Barrington’s offer to meet with at least one investor to address concerns.
But Barrington has also not been without criticism. In December he told shareholders the airline “is and will be profitable”. It promptly posted a €120m pretax loss for 2008 and is expected to post another loss of €55m this year. Barrington will assume the CEO reigns until a replacement can be found.
Of interest now will be whether Mannion’s departure prompts some sort of action or change in stance from Irish rival Ryanair. The carrier holds a 29.8 per cent stake in its smaller competitor, and has already made two bids for it, both rejected by the European Competition Commission and/or shareholders.
Still, Aer Lingus seems to be something of a personal obsession for Ryanair CEO Michael O’Leary. On a more pragmatic level, Ryanair has already had to take a series of writedowns on its AERL stake. Aer Lingus is as much of a fiscal interest for Ryanair as it is a publicity opportunity.
Mannion’s sudden departure may well heighten that (disfunctional) relationship.
Update: Veteran airline analyst Joe Gill has sent us a bit of commentary. Gill is now at Bloxhom, but was formerly house broker to Ryanair at Davy.
Mr Dermot Mannion is stepping down as CEO of Aer Lingus with immediate effect. The problems at Aer Lingus are not personality driven, they are structural. Investors should bear that in mind when judging his tenure. The Board must now establish a clear mandate for any new appointment. If it wants an independent and standalone airline, then it must give executives the scope to cut costs more aggressively so that it can compete against easyJet and Ryanair. If the mandate is to position the company for a merger with a European Flag, then management must be allowed take route, aircraft and base decisions that meet those criteria. What it cannot do is explain Mr Mannion’s resignation as an answer to anything. Aer Lingus has seen too many CEOs through its doors over the past decade. Its business faces unprecedented challenges as consumer demand falls by up to 10% this year in its home market while cash outflows will materially reduce valued cash balances towards €400m (from €654m). Before they appoint a new CEO, the Board should clarify how they expect that executive to create shareholder value.
Related links:
Aer Lingus must apologise for misleading shareholders – Ryanair
Flying forces – FT Alphaville